Percentage philanthropy – does it work?

Percentage philanthropy – legal mechanisms that allow taxpayers to allocate a certain percentage of their income tax to entities engaged in public benefit activities – has been adopted in several countries in Central and Eastern Europe since the first 1 per cent law was adopted in Hungary in 1996.

The first was Slovakia, in 2001. With schemes due to start in Lithuania this year and in Poland and Romania in 2005, and legislation planned in a number of other countries, the international conference on ‘Percentage Philanthropy’, held 19-20 January in Budapest and hosted by the NIOK Foundation, provided a timely opportunity to review progress.

First, how is it going in Hungary, the country that pioneered the whole concept? Although it has undoubtedly helped raise money for NGOs and increased the visibility of the NGO sector, Tamas Bauer, former MP and ‘father’ of the law in Hungary, describes himself as a ‘disappointed father’ because the law has not served the purposes for which it was intended. He had hoped that advocacy NGOs would be able to receive state funding without the usual political strings that are attached. In fact, people tend to designate their funds to educational, social and health NGOs that receive state funding anyway.
There is also clearly a danger that governments will agree to such legislation and then abolish other ‘traditional’ tax incentives for NGOs, arguing that the 1 per cent should be enough support. This has happened in Lithuania, Slovakia and Poland. In Poland, for example, existing tax deductions for both individuals and corporations will be reduced. In Slovakia, too, all previously enjoyed tax benefits and allowances will be abolished from 2005, including the tax deductibility of donations to NGOs. Despite the fact that both individual and corporate taxpayers can now designate 2 per cent of their taxes to a qualifying NGO, some in the NGO sector fear that the income from the 2 per cent mechanism will not compensate for the loss of income to NGOs caused by the cutting of tax incentives for donations.

The other major question mark is whether this mechanism really encourages philanthropy or not. On the one hand, it makes people think ‘philanthropically’ (what cause do I want to support?); on the other, it may replace ‘true’ philanthropy, which involves giving from your own property (as opposed to allocating taxes).

For further information
contact Marianna Török at NIOK at m.torok@niok.hu or see http://www.onepercent.hu


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